Uncertainty is causing our “Deer in the Headlights” Economy

Post navigation

That was the general reaction to the latest UCLA Anderson economic forecast predicting “very sluggish growth” for a slowly recovering economy into the 2012 election season. The forecast for California was no better saying it would be a long, slow, slog to gain back the 1.3 million jobs lost in the recession let alone generate growth beyond that loss. UCLA forecast the national unemployment rate will be 9.7 percent by 2010 year-end and 9.5 percent in 2011. For California today’s 12.6% unemployment rate is expected to fall slowly and average 12.2% for 2010, but will not fall below double digits until 2012.

Remember, if voters approve Proposition 23 in the Fall 2010 election, California’s AB32 Global Warming Solutions Act would be suspended until unemployment falls below 5.5% for four consecutive quarters. You can bet its proponents will be campaigning for the measure saying California’s AB32 is a “jobs killer”.

UCLA senior economist David Shulman said there were two reasons for the slow recovery.

Our Economic Balance Sheet is a Mess. The UCLA “balance-sheet hypothesis” done two years ago, is similar to the University of Maryland and Harvard University results finding that” recoveries from the bursting of debt-fueled financial bubbles are invariably slow and are associated with high unemployment rates and rising government debt.” Meaning quick recovery is not likely.

Too Much Policy and Tax Uncertainty. “The recovery is being exacerbated by an extraordinary increase in policy uncertainty, which is amplifying the usual economic uncertainties associated with recessions.” So businesses are unsure that investment, new hiring or purchasing new equipment makes sense given the uncertainty over tax rates, and the looming costs for new environmental, energy, financial, labor and health care policies the Government is imposing.

“As time passes the economy will naturally heal and the policy uncertainties will resolve themselves to allow growth to return to a 3% path, causing unemployment to begin a long-awaited downward trajectory. We forecast that these more ebullient trends will become noticeable by 2012.” —-David Shuman, Senior Economist, UCLA Anderson Forecast

So what?

Uncertainty has a way of sapping our confidence leaving us with that ‘deer in the headlights’ feeling that discourages the very actions most needed to break the cycle. The economy needs to grow again to pull the US back into sustainable growth mode. But the actions of the government are having the opposite effect and every day consumers are receiving rising health care premium notices, notices of changes in bank fees and credit terms, reports of dismal housing sales and falling home values even at record low rates—and then there is the unemployment rate looming over us like a falling sword.

The result is a TEA party where the punch is spiked, the crowd is surly and the politicians are running for the exits or being thrown out by the crowd. While the results of the 2010 election season are increasingly the sum of the fears of incumbent politicians in both parties, the change it is bringing helps to turn our civic attitude from uncertainty to empowerment once again and this is good.

The genius of America has always been our ability to adapt and change—to reinvent ourselves, to live into our future rather than be shackled to our past. What we’re proving to ourselves all over again is we still can do it.

Change WE can believe in is turning our uncertainty into certain action, not necessarily the way our leaders want, but the way we want to put America back to work.